The breathtaking rush into the perceived safety and stability of the Bomb
er Bond markets which began at the depths of the 2008 Global financial crisis
are in blow off mode. A recent Bank of international settlements annual report
has been ignored due to its message of CAUTION. The main stream media routinely
blacks out these messages and have done so this time. Frenzied reach for yields
are occurring throughout the world.
"Investors are gobbling up riskier assets like never before." - Wall
Street Journal, May 27, 2014
Actually, we are closer to the 1996 lows in yields than it appears as back
then it was 5 year treasuries versus 7 year treasuries being graphed now. This
is understandable as over $35 Trillion dollars (35 million million) have been
printed or issued out of thin air by lenders or central banks since 2008. That
money is now frantically seeking a home. Keep in mind we operate in a reserveless
banking system with leverage ratios officially about 33 to 1 but probably much
higher if properly measured. Most people don't understand that deposits used
to drive lending; now the lending drives the deposits as can be seen in cash
balances worldwide.
"Financial markets are euphoric, in the grip of an aggressive search
for yield,"... And yet investment in the real economy remains weak while
the macroeconomic and geopolitical outlook is still highly uncertain." -
Claudio Bono, Bank of International settlements, June 2014
The BIS report outlines several alarming facts related to syndicated loans; "--"for
instance, credit granted to lower-rated leveraged loans" exceeded 40%
of new loans for much of 2013. "This share was higher than during the
pre-crisis period from 2005 to mid-2007" and "fewer and fewer of the
new loans featured creditor protection in the form of covenants."
Leverage and ISSUANCE is at record levels across a wide spectrum of credit
and bomb er bond markets!
Over $642 BILLION Dollars of corporate DEBT sales in the first half of the
YEAR at record LOW Rates sets and ALL TIME RECORD!
The dash for trash such as PiK toggles, cov lite, junk, commercial loans.
corporates and US treasuries are at levels rarely seen in history. Can it go
farther? Sure. $35 million million is seeking a home and income in a world
that has a shortage of real investments. That's a lot of cabbage rotting away
from printing press and exploding credit issuance. Nobody knows when the last
fools will be in at the top but it is certainly time to start looking for them.
Money is just mindlessly seeking shelter from the central banks mandate to
INFLATE or die. Central banks have joined the frenzy mindlessly rushing into
overvalued tangible markets in exchange for the worthless paper (FIAT CURRENCY)
on their balance sheets. Recent reports put the number at over $29 Trillion
since 2008. Here's another picture of the insanity afoot in the world from
Lance Roberts at www.streettalklive.com:
"We have seen this exuberance before. In 1999, the old valuation metrics
no longer mattered as it was "clicks per page." In 2007, there was NO concern
over subprime mortgages as the housing boom fostered a new era of financial
stability. Today, it is the Federal Reserve 'put' that is unanimously believed
to be the backstop to any potential shock that may occur." - Lance
Roberts
Those are all time lows in junk bomb er bond yields. Much of the printed money
has fled the developed world for the emerging world where interest rates still
put a cost (not zero) and return on money:
Informed observers know there has been no REAL ECONOMIC growth since 2008;
actually it has been much longer than that. It has actually been over 30 years
since real growth occurred in the developed world. All reported growth since
the early 1980s has been debt disguised as growth. It is why your money has
lost so much purchasing power since that time. Living standards are in free
fall in REAL terms. It is this debt growth and debasement that has FUELED and
DESTROYED the middle classes in the developed world. Growth became a function
of printing money and debt issuance in thinly disguised socialist welfare states
in Europe and the US.
"There is no means of avoiding the final collapse of a boom brought about
by credit expansion. The alternative is only whether the crisis should
come sooner as the result of a voluntary abandonment of further credit
expansion, or later as a final and total catastrophe of the currency system
involved." - Ludwig von Mises
The elites, banksters and insolvent governments of this era are following
the latter route as have all their predecessors. This has been a bottom line
of the present day situation since Breton woods II in August 1971 forever altered
the definition and functions of money. One day the citizens of the world had
semi sound real money in their hands and bank accounts to store their labor
and wealth in and the next day it was IOU's or morally and fiscally bankrupt
public servants government and banksters. It was the greatest heist in history
done in DAYLIGHT.
Now the greed and avarice of public servants, something for nothing constituents
and the banksters which facilitates them KNOW NO BOUNDS and has outdone every
previous episode in history. The boom has been tremendous but the bust will
be one for the history books.
Real money is still available as it has been throughout time. Those are Gold,
Silver, Commodities, land and in more recent century's energy. Throughout history
humans have consumed all of these and exchanged money for them. These are the
basics of existence, always have been and always will be. To put into perspective
how debt has substituted as growth here is something to ponder:
From 1950 to 1980, the world's largest economy soared by 191% in inflation-adjusted
terms, while the combination of household, corporate (including financial)
and government debt increased by a mere 12%"
"In the following three decades, from 1980 to 2010, the U.S. GDP grew a more
moderate 124%, yet total debt rose by an almost identical 125%".
Did GDP increase or did the DEBT GROWTH create the illusion of GDP growth?
The answer is self-evident. The greatest experiment in leverage in HISTORY
and money printing has been transpiring for over 44 years. Someday soon it
will all end with a pop. On that day hope will turn to fear as the leverage
FAILS. But the present day version has all the fingerprints seen throughout
history and are now front and center. Now we are going to look at a number
of pictures which are reflections of each other. The first is Global Money
supply from 1986 to January 2013:
Yes, you see that right it has exploded from $5 trillion in 1986 to $52 trillion
in less than 30 years dwarfing all of history before it. Since 2002 it has
gone virtually vertical. Do you know what happens to a plane when it climbs
like that? It isn't pretty. Since January of 2013 it is up at least another
$3Trillion. That PILE of worthless IOU'S are now just COUPONS you can EXCHANGE
for REAL WEALTH. Let's take a look at the bombs er bonds and it is the mirror
image of the previous chart and runs from 1989 to September of 2013:
Wow, another $90 Trillion and easily up another $2 to 3 trillion in the last
9 months and the developed world has debt to gdp ratios which are UNMANAGEABLE
to say the least. This does not include bank lending. Most people don't know
but global asset markets now total almost $250 trillion ($250 million million)
but the ugly little detail is that 80% of it is INTANGIBLE sitting in worthless
paper of one sort or another.
The math is hopeless. If interest rates average 5% on this pile of paper above
($175 trillion) the interest alone is a cool $11.25 Trillion alone. Like
I said, no principal can be paid back on balance. A lot of this debt is already
non-performing, just not reported as such through official chicanery. So,
those productive assets must make that amount just to pay the interest on the
piles of paper. This graph ends in Q2 2012, almost 2 years ago. Keep in mind
the cash that was created when the debt is equal to the $175 trillion (175
million million) so it is sitting somewhere in a bank, called money but actually
a form of junk bombs er bonds. At some point the pile of paper is going to
try and move into the real assets and a "Crack UP Boom" will commence. We can
see a ghost of it today as all asset classes are rising simultaneously in the
last 6 months.
The world's sovereigns and financial systems remain addicted to DEBT and debt
spirals are plainly visible THROUGHOUT the world:
Author's
Note: In my opinion the greatest manmade disaster and OPPORTUNITY in
history is unfolding in every corner of the world. Are you diversified or
operating with EYES WIDE SHUT? Are you prepared to turn it into opportunity
by properly diversifying your portfolio? Adding absolute return investments
which are designed with the potential to thrive (up and down markets) regardless
of what unfolds economically or politically? This is what I do for investors;
help them diversify into investments which are created to potentially thrive
in the storm. For a personal consultation with me
CLICK
HERE!
Most people don't understand the Bombs er bonds are IOU'S denominated
in IOU'S. If one creditor doesn't get you the other one will. What
good is an IBM bond worth if it is denominated in US dollars, Japanese
Yen, Euros, etc.: which are already MATHEMATICALLY worthless? We
are just waiting for PEOPLE to WAKE UP as Von Mises puts it. The
banks are also sitting in hopeless insolvency and zombies in everything
but name:
The US looks good in comparison to most others, but the dirty little secret
is that they have written and are counterparty's to over $200 TRILLION dollars
of over the counter derivatives with nothing anchoring them but the CREDIT
RATING which are public fictions. Those OVER the COUNTER derivatives have no
margin held against adverse moves against them. In reality those derivatives
are in place to manipulate and control these markets. Please recall that world
banks are operating at leverage ratios which make MF Global look PRUDENT. At
least 20% of those balance sheets in bonds which are unpayable and inextinguishable;
it is called risk free government DEBT. HO HO! These world banks are
Zombies, operating in regulatory approved and ENGINEERED INSOLVENCY.
A large portion of their balance sheets reside in debt of sovereigns which
have not paid a penny back in 30 to 50 years. It has only been rolled over
and new borrowing to fund the welfare state issued. We are operating in a world
where the business model of the governments is Ponzi economics. Never
in history have so many governments operated with no intention of repayment. As
Lenin so aptly put it:
"Without big banks socialism would be impossible" - Vladimir Lenin
Of course this is just the on the books amount, the real total including unfunded
future liabilities is 4 or 5 times this amount. Take a look at these charts
showing you the GAAP adjusted numbers for the UNITED STATES from www.shadowstats.com (I
highly recommend John's work):
These are a little old as I took them out of an older presentation. But the
GAAP adjusted deficits regularly hit $7 Trillion dollars ($7 million million)
a year and the real deficit is $90 Trillion (90 million million) not the $17.5
Trillion told to the public. Lawrence Kolikoff at Harvard puts the real GAAP
adjusted budget deficit at over $222 Trillion dollars (222 million million).
The idea that this will ever be paid is ZERO and the when the S**T hits the
fan moment is on the near horizon.
In closing, Contrary to main stream media and finance industry we are not
getting into a recovery we are heading into the next wave of INSOLVENCY. Global
central banks cannot allow these flows to REVERSE so you can expect their balance
sheets to BALLOON AGAIN as the become the market maker of LAST RESORT. It's
INFLATE or DIE for the world's CENTRAL bankers or their Ponzi economies and
financial systems will PERISH. So you can expect the MADNESS to CONTINUE until
it CAN'T.
RECENT IMF and Federal Reserve white papers propose exit fees for bond funds
to discourage flight out of these asset classes. HA HA, when the real PANIC
sets in it will be "get me out" at ANY PRICE for the fools that have chased
these markets. With the weakest hands JUMPING FIRST! As the FED tapers (tightens
monetary policy), the Peoples Bank of China reigns in the rate of credit growth
and attempts a soft landing, and the Bank of England raises short term rates
do you think these lala land paper asset values can be sustained? What do you
think will happen when these flows REVERSE? Who will buy them on their way
down and provide LIQUIDITY? Dodd Frank has severely restricted the banks' ability
to do so. Famous Distressed bomb er bond investor Howard Marks is warning of
froth and overvalued markets. As Warren Buffet has said many times be cautious
when investors are greedy and greedy when investors are panicking. GOOD ADVICE
at this TIME! They are in greedy mode.
Whether this plays out over a year or a decade the end zone remains the same
as it has throughout history: a currency and financial system extinction event
as these assets revert to the mean and drop to a value which provides a yield
greater than the REAL RATE of investment. That intangible and worthless paper
IS the RESERVES of the global banking systems. I am Austrian and it is etched
in history and never ends any differently. Only this time it is different,
Different in scale! It isn't one or a few countries; it is all of them
in the developed world! It is the greatest mass insanity in history.
This is NOT DOOM and GLOOM: IT IS THE GREATEST OPPORTUNITY IN HISTORY if you
put your portfolio into applied Austrian economics investments. This is my
specialty.
Author's Note: In my opinion the greatest manmade disaster
and OPPORTUNITY in history is unfolding in every corner of the world. Are you
diversified or operating with EYES WIDE SHUT? Are you prepared to turn it into
opportunity by properly diversifying your portfolio? Adding absolute return
investments which are designed with the potential to thrive (up and down markets)
regardless of what unfolds economically or politically? This is what I do for
investors; help them diversify into investments which are created to potentially
thrive in the storm. For a personal consultation with me CLICK
HERE!
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